On July 2, 2025, the American Institute of Certified Public Accountants (AICPA) issued an exposure draft, Proposed Statement on Auditing Standards (SAS), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, and on July 8, 2025, the International Auditing and Assurance Standards Board (IAASB) issued International Standard on Auditing 240 (Revised), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, Including Conforming and Consequential Amendments to Other IAASB International Standards (ISA 240 (Revised)).
AICPA’s Proposed SAS, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
The proposed SAS would supersede AU-C section 240, Consideration of Fraud in a Financial Statement Audit, and amend other sections.
The proposed SAS clarifies the auditor’s responsibilities relating to fraud risks and suspected fraud by emphasizing a fraud lens throughout the audit process. The intent is to increase audit quality by assisting auditors in identifying, assessing and responding to risks of material misstatement while planning and performing the audit. In addition, the proposed SAS includes clarified guidance for performing appropriate audit procedures when fraud or suspected fraud is identified.
If approved as a final standard, the proposed SAS would become effective for audits of financial statements for periods ending on or after December 15, 2028, with early adoption permitted.
Comments on the proposed SAS are due October 3, 2025.
IAASB’s ISA 240 (Revised), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
Similar to the AICPA’s proposed SAS relating to fraud, the IAASB’s ISA 240 (Revised) clarifies the auditor’s responsibilities relating to fraud risks and suspected fraud by emphasizing a fraud lens throughout the audit process, including the auditor’s risk assessment and the appropriate responses to identified risks and suspected fraud. ISA 240 (Revised) also provides greater transparency in the auditor’s reports of publicly traded entities.
ISA 240 (Revised) is effective for audits of financial statements for periods beginning on or after December 15, 2026, which is aligned with the effective date of ISA 570 (Revised 2024), Going Concern. The IAASB recognizes the relationship between fraud and financial distress and believes addressing them together will increase corporate transparency and resilience.
